With Q1 subscription revenue up 20% to $1.53 billion, Workday continues to provide plenty of evidence for why it’s on track to not only reach its long-term goal of $10 billion in annual revenue but also perhaps begin pointing to an extended target of $15 billion.
In Workday’s fiscal-Q1 earnings call late last month, while co-CEOs Aneel Bhusri and Carl Eschenbach clearly recognized the impact of the uncertain global economy, they also continued to be bullish on the company’s prospects for delivering robust growth in spite of that significant challenge as well as savage competition from Oracle, SAP, and others.
In my view, Bhusri and Eschenbach used that earnings call brilliantly to not only deliver strong financial results but also articulate more clearly Workday’s unique differentiation and capabilities in a market filled with highly capable competitors in HCM, Financials, and more broadly ERP.
From that call, here are my top 10 reasons why I believe Workday is well on its way to fulfilling Eschenbach’s expectation of being one of the world’s largest enterprise-apps companies.
1. Solving the Bhusri + Eschenbach Co-CEO Equation
After a legendary operating career at VMware during its years of hypergrowth and then as a highly successful VC at Sequoia Capital, Eschenbach joined Workday as co-CEO early this year and, early next year, will become Workday’s sole CEO as Bhusri moves to executive chairman. The move is playing out perfectly as it allows Bhusri to do more of what he does best–product vision, strategy, and development — while enabling Eschenbach to infuse the sales and go-to-market organization with more of what he’s called “giddy-up” — as in selling more stuff to more customers. That intensified sales and marketing focus from Eschenbach combined with Bhusri being unleashed to devote much more of his time to product strategy represent huge steps forward for Workday.
2. Will Vendor Consolidation Spur New Revenue for Workday?
For the past several months, Workday executives have been making the point that as customers scrutinize purchases more rigorously, those businesses are reducing the number of software companies they work with. Eschenbach believes this plays perfectly into Workday’s hand because “Workday is mission-critical. Workday is the intelligent digital backbone for enterprises who are looking to consolidate their technology footprint and move from best-of-breed applications to best-in suite or best-in platform. Enterprises are clearly looking to benefit from the reduced total cost of ownership and rapid pace of innovation that Workday delivers,” Eschenbach said.
3. For Workday, AI and LLMs Are Not Shiny New Objects
Every tech vendor is attempting to position itself this way, but Bhusri spelled out in detail why he feels Workday’s claims are fully legitimate. “Several things set us apart (emphases mine):
- “One, AI and ML are embedded into the very core of our platform, allowing us to rapidly deliver and sustain new ML-infused capabilities into our products to drive more business value for our customers.
- “Two, we have the quantity and quality of data that further differentiates us, meaning that we not only have access to an enormous amount of data due to the more than 60 million users representing more than 600 billion transactions over the last year, but we also have a unified data model that allows us to build and train models in a way our competitors simply cannot replicate.
- “And three, we firmly believe that to deliver on the possibilities it offers, AI and ML must be leveraged in a trustworthy and ethical way. Workday has always been a trusted partner to help companies keep their most critical assets — their people and money — safe, secure, and private. This approach becomes even more essential when leveraging AI and ML. As you know, generative AI is driving the AI and ML discussion right now. Despite the recent hype around large language models, Workday has been delivering AI and ML, including LLMs, for several years.”
4. Jumping on New Priority for CEOs: Employee Engagement
Calling employee engagement “one of the biggest hot buttons for CEOs today,” Bhusri said, “We’re continuing to see more organizations turn to Peakon to help them stay on top of and address employee sentiment. In fact, Peakon hit a significant milestone in Q1 as it surpassed more than 500 million total survey responses and 70 million written comments, providing us with one of the world’s largest standardized data sets on employee sentiment.”
5. AI-Powered Predictive Planning for Today’s Turbulent Times
Looking to “help organizations more effectively navigate today’s business landscape,” Workday is infusing its high-growth Adaptive Planning applications with ML-driven predictions. “For the office of the CFO, we recently unveiled Predictive Forecaster, a capability within Workday Adaptive Planning that creates ML-based forecasts, with the ability to add additional regressors and data sets,” Bhusri said. “The feature, which is in limited availability today, supports our next evolution of Workday Adaptive Planning to produce increasingly predictive plans and enhance insights.”
6. More Developers Doing More Extensions on Workday
With its Extend platform-as-a-service now in use by more than 500 customers, Workday is looking to ride the booming AI trend among developers, Bhusri said: “We introduced our first set of ML APIs in Q1 to enable our Extend customers to build extensions that leverage ML.
We also released low-code/no-code development functionality with App Builder, enabling developers to create apps with Extend via a simple drag-and-drop user interface.” And at the third annual Workday DevCon, in-person attendance was up by about 200%, which “is a testament to the excitement we’re seeing from our customers and partners to build on top of the Workday platform” across Extend, Prism Analytics, Adaptive Planning, Journeys, and Integrations.
7. Doing More with AWS: Native Integrations with Extend Platform
Three months ago, Workday announced an enhanced partnership with AWS around go-to-market opportunities. Building on that, Bhusri said during the Q1 earnings call late last month that Workday has expanded its “decade-plus partnership with AWS to create a native integration from Extend to AWS. With this integration, developers can easily and securely leverage AWS services in their Extend applications” and “into the rest of the Workday application suite.”
8. Huge Revenue Potential for Workday’s “Best-Kept Secret”
Are we seeing a platform and developer theme here? Bhusri certainly is, calling Extend “one of our best-kept secrets” and hinting at big revenue potential in the future by saying, “It’s hard for me to see how every customer shouldn’t want to have at least some presence of Extend in their Workday footprint.”
9. Total Subscription Backlog Is Booming
Workday reported that at the end of Q1 (April 30), the total subscription revenue backlog jumped a very impressive 32% to $16.65 billion. “In addition to the benefit from early renewals, we continue to see increased average contract duration on both new deals and renewals, causing total backlog to grow significantly faster than our 24-month backlog.”
10. Boosting Guidance for FY24 Subscription Revenue
While acknowledging its increased guidance “is prudent in the context of the environment, Workday also said that on the heels of its strong Q1, it has raised the low end of its FY24 guidance for subscription revenue and expects that full-year number to be up 18% with a range of $6.55 billion to $6.575 billion.
